Using an Intermediary or Broker
Entrepreneurial spirit drives employee funeral directors to consider ownership. But the confidence and drive that motivates entrepreneurs can overshadow logic when it comes to managing the purchase of a business.
Buying a funeral home business requires managing a lot of details—packaging your financial profile as a prospective buyer, finding a seller willing to sell at a realistic price, reviewing the seller’s business and performing due diligence, negotiating price and terms with the seller, finding a lender and gathering and packaging the information required by that lender and finally, evaluating the lender’s proposed loan terms and making sure they are a fit for your transaction.
Buyer beware, many people stand ready to take advantage of a first-time business buyer. That being said, a good intermediary can help present you in the best light to lenders and sellers. This person may also be able to locate buying opportunities that you may not be able to find on your own. A competent intermediary will negotiate price and terms that may be significantly better than what most buyers could achieve on their own.
What an intermediary does for the buyer
- Determines advisability of a purchase, including financial and credit strength.
- Develops a buying strategy.
- Finds and contacts potential sellers, introduces your qualifications to them.
- Schedules and conducts meetings with qualified sellers.
- Helps buyers obtain the information they need about the business to evaluate the acquisition.
- Negotiates price and other terms.
- Works with all parties to prepare and close the sale contract.
- Remains available to the buyer during the transition process.
How an intermediary is paid
Professional intermediaries are paid when the deal closes. Their fee is normally based on a percentage of the sale price. Beware of intermediaries that want to charge fees up front or that can’t fully describe their fees to you.
Reasons to use an intermediary
You may be questioning the need for an intermediary. You may be asking “Can’t I do this myself? Is it necessary to give up a percentage to another person?”
A good intermediary will more than make up for the fee you pay by getting you a better price, better terms, and a smoother transaction. Some of the reasons to use an intermediary include:
- Experience – Like you, competent intermediaries have invested years to become a specialist in their field. A professional intermediary brings an understanding of the acquisition process and the market for funeral homes. Your intermediary can help package you for sellers and lenders, work with you on the technical aspects of the purchase, and resolve accounting, legal and tax issues.
- Objectivity – A Buyer has an emotional stake in the purchase of a business. It’s hard to separate issues from emotions when you are close to a situation. An intermediary can maintain this separation. The intermediary will stay focused on resolving the issues that arise in the course of buying a business.
- Knowledge of sellers – Just as you wouldn’t expect someone to become an expert in the needs of your local customers, it will be difficult for you to quickly become an expert in the market for funeral homes. An intermediary that specializes in your market lives and breathes the patterns and rhythms of the buying and selling of funeral home businesses. An intermediary will find sellers that haven’t publicized the sale of their business, opportunities that you would never see otherwise.
- Confidentiality – The sale of a funeral home business is a particularly sensitive transaction. If information is leaked to your employer, or perhaps to the employees, suppliers and customers of the seller, it could cause a serious disruptive hardship. An intermediary can orchestrate and control the process by restricting most contact between buyer and seller to a remote site. An intermediary can maintain confidentiality throughout the process by carefully screening sellers and by using strong non-disclosure agreements.
- Skill at negotiations – It’s likely that the seller will be an individual who has little experience with sell transactions. Whether the seller has an intermediary or not, it is in your interest to have someone negotiating on your behalf, a person who is experienced at negotiating the best terms and price. And because the intermediary can’t legally commit for you, you will have more flexibility because the intermediary will have to check with you before agreeing to anything.
- Role as a buffer – The buyer and seller of a funeral home will likely be working with each other after the sale to successfully transition the business. It’s important that they develop and retain a good working relationship during the selling process. Yet this is hard to do in the emotionally charged atmosphere of a negotiation, especially if the negotiating gets tough. An intermediary can act as a buffer between both parties, allowing you to negotiate tough deals without direct confrontation. And when you reach an impasse over a particular term, an experienced intermediary can suggest alternative options that will keep the discussion moving.
What to look for in an intermediary
While a professional, experienced intermediary can add tremendous value to the transaction, an ill-informed, inexperienced advisor can do more harm than good.
Look for these qualities:
- Professionalism – An intermediary’s reputation can have a profound impact on your ability to buy a business. Be certain that your intermediary has the required education and experience. The intermediary also must have a solid reputation with the funeral home industry and within the lending community.
- Experience – Your intermediary should have a solid track record of successful funeral home transactions.
- Focused Effort – This transaction is important to you, it may be one of the most important economic events in your life. You want an intermediary that also takes it seriously. Avoid intermediaries who take a “listings” approach, working on many companies simultaneously in hopes of generating a transaction. Find an intermediary who has the time, the experience and the will to focus on the purchase of a business and who will see it through to the end.
- Senior level attention – Avoid an intermediary who will hand off your work to a junior person on the staff. Find an intermediary who is anxious enough for your business to devote a senior person to the project.
- Sensitivity to your objectives – A competent intermediary will bring a wealth of experience to the table. A good intermediary will also listen to the client and the client’s specific goals. If the person is truly capable, this careful listening will translate into a customized approach that produces a successful purchase and that meets your objectives.
- Exclusive representation only – Sometimes your intermediary will find a buyer or seller who does not have representation. In this situation it might be tempting to agree to let the intermediary work for both parties. This would create conflicts of interest that are best avoided.
- Personal compatibility – Finally, select a person with whom you are comfortable working. The process of preparing and buying a business is intense. You are more likely to successfully navigate difficult waters if the two of you establish a good working relationship.